Sunday, July 13, 2008

Would you cut back on driving if your insurance company charged by the mile, and maybe by the way you handle your ride?

Some state lawmakers and regulators are betting many Californians will.

Insurance Commissioner Steve Poizner is moving swiftly on regulations for a "Pay as You Drive" system that lets carriers grant discounts to drivers who volunteer for mileage verification, with lower rates for fewer miles.

The big question: How would the companies check it, and what else might they track?

Several insurance companies favor in-car wireless devices to collect and transmit data. And some have urged the state to let them factor in driving behavior — speed, acceleration and braking, time of day — when setting rates.

The issue has chiseled an odd political split. Environmental groups have lined up with insurance companies in support of a bill to allow pricing based on voluntary mileage verification, while the prospect of insurers gauging not just miles, but mileage "quality," has some consumer and privacy rights groups howling.

Their fears include industry abuses, hackers and the likelihood that driver records will wind up in court. The Times last year reported that toll officials regularly turn over FasTrak data under subpoena in divorce cases, lawsuits and criminal investigations.

The pay-as-you-drive concept is not new. Progressive Insurance offers discounts in four states to thousands of drivers Advertisementwho agree to link their rates to mileage, speed, time, hard acceleration and braking. A palm-sized device transmits the data daily by cell network. Drivers can check their behavior and potential savings online.

"Mileage by itself is mildly predictive (of risk). But driving behavior is even more so," said Richard Hutchinson, a Progressive manager who heads the program. "It introduces empowerment ... and we're seeing indications of people changing behavior."

For the idea to take hold in California, the state must craft new regulations. Prop. 103, which voters passed in 1988, mandates that insurers price automobile policies primarily by driving record, miles driven and years of driving experience, in that order. The insurance commissioner can specify other factors linked to risk. Gender, marital status and type of vehicle are among 16 other factors in play. Stops, starts and other behind-the-wheel behavior are not. Last week, Poizner's office put out a call seeking evidence that ties those factors to risk.

Supporters say a mileage-based program will make rates fairer, reduce pollution and accidents, and help the state adhere to the second big factor under Prop. 103, instead of leaning on unreliable driver estimates and smog-check odometer readings that come too infrequently.

The Department of Insurance plans to issue draft regulations as early as next month. Separately, Assemblyman Jared Huffman, D-San Rafael, this year introduced a bill to allow different pricing for drivers who opt for mileage verification. AB2800 passed 72-2 in the Assembly and awaits Senate action.

"We're definitely making this a high priority," Poizner told the Times. "If we can reduce the total miles driven in the state, the highways will become safer, the environment will be cleaner, and total energy consumption will go down. There's a whole bunch of really positive public policy reasons why I want to get these regulations done as quickly as possible." Poizner said he wants a voluntary system for both insurance companies and drivers.

But one UC Berkeley scholar says a voluntary program will fall short. Aaron Edlin, a law and economics professor, said insurers have long resisted tying mileage to rates because it amounts to a "drastic change" in their business model. Most pay-as-you-drive consumers will drive less and save, meaning less revenue. And while accident claims also will drop, the benefit largely goes to other drivers, said Edlin, who favors a mandate.

"Insurance companies have some limited incentive to adopt pay-as-you drive insurance — if they want to be a niche company and specialize in serving low mileage drivers," Edlin said. "However, they don't have nearly the incentive that they should have."

Based on data from a pilot project in Texas, California could cut 55 million tons of carbon dioxide between 2009 and 2020 — akin to curbing 10 million cars — if 30 percent of drivers volunteer, according to Environmental Defense Fund economist James Fine. A Brookings Institution study estimated that pay-as-you-drive would reduce vehicle miles by 8 percent and save most households an average of $270 per car.

"Transportation is a huge part of California's greenhouse-gas emissions. That's something that pay-as-you-drive insurance puts in control of the people who are driving, in a way that gets them to actually benefit financially from making the right decision," said Lauren Navarro, climate policy analyst for the Environmental Defense Fund.

Privacy and consumer advocates complain about a lack of safeguards in Huffman's bill and perhaps heavy incentives for drivers to place a "black box" in their cars. If insurers can track time or location, they argue, would they charge graveyard-shift workers more, or those who drive or park in bad neighborhoods? Could they use aggressive driving to block claims? Advocates favor a simpler system — preferably a human eye reading an odometer.

"The mileage data is not as disconcerting as the other stuff. The other data opens a Pandora's box for what it can be used for," said Carmen Balber of Consumer Watchdog, the group founded by Prop. 103 author Harvey Rosenfield. "Insurance companies have made clear they don't care about mileage. They just want to get in our cars."

One privacy advocate said it's not enough to limit the data insurers can use to set rates; regulators need to limit what they can collect.

"It doesn't matter how many rules you have. These kinds of databases tend to be targets for legal subpoenas," said Peter Eckersley, staff technologist for the Electronic Frontier Foundation. "The question of whether your religious or political affiliation or sexual affiliation can be judged by the places you drive — those are things people might not like being transmitted into big databases."

Poizner, a Republican, said he will let insurers choose how to verify miles, and he's open to considering stops, starts and other gauges of driver behavior as rate factors. But he insists he will bar technology such as GPS.

"That creates too many privacy problems. I don't support at all the tracking of the exact location of where drivers are going, period," he said. "We're never going to get close to what I think creates the major privacy issue."

Several insurance companies say onboard devices make the most sense and cite privacy laws barring them from sharing customer data.

"You can't sell it. There are strict limitations. That has proven to be a strong protector of privacy," said Sam Sorich, president of the Association of California Insurance Companies. Huffman noted that the program will be voluntary for drivers: "Nobody's going to be forced to do any of this."

Hutchinson, of Progressive, said no data from its pay-as-you-drive program have been subpoenaed, but "we all know it's going to happen at some point. Our position is the data belongs to the consumer and we only release it with their permission. However, subject to a court order, there's not much we can do." In any case, the company does not track driver location, he said.

"We can, and we've elected not to. For a lot of consumers, that would make them very nervous about all this," he said.

Marcy Greenhut of Berkeley likes the sound of pay-as-you-drive. She mostly cycles or takes public transportation, and she has seen consumers drive less as gas prices have skyrocketed. Better to feel the pinch of every mile, she said.

"Anything that can incentivize people to think twice before they drive, to put a little more thoughtfulness into our routine, I'm in favor of."